An Australian-born multi-millionaire CEO has warned that a recession is drawing nearer, with some firms likely to be left “fatally damaged”.
Australian-born multi-millionaire CEO James Gorman has sounded the alarm over a looming economic disaster as a US recession grows more and more likely.
Mr Gorman, who was born in Melbourne before moving to America in the ’80s, has held the top job at multinational investment management and financial services company Morgan Stanley since 2010.
Speaking at the Morgan Stanley US Financials, Payments and CRE conference on Monday US time, Mr Gorman, who has a net worth of at least $US137 million ($A197 million), said there was a 50-50 chance the world’s biggest economy was headed for recession.
That’s a significant jump from his previous prediction of a 30 per cent chance of recession.
“It was inevitable this inflation was not transitory, it was inevitable the Fed would have to move faster than they were projecting,” Mr Gorman said.
“There was a legitimate recession risk. I used to think it was about 30 percent.
“It’s probably more like 50 per cent now – it’s not 100 per cent. It behoves you to be a little cautious.”
Mr Gorman said while Morgan Stanley was in a strong position to weather the economic storm, he believed some institutions would be “potentially fatally damaged”, but added he was more concerned by non-economic global risks “given where we are around the world and some of the geopolitical uncertainty associated with that”.
Australia’s stock bloodbath
His comments come as Australian stocks plunged deeply into the red today as global markets are smashed and fears grow over a worldwide recession.
The plunge wiped tens of billions of dollars off the value of the country’s top companies in reaction to concerns the US Federal Reserve will lift interest rates far faster and higher than previously expected.
In turn, that would slash the ability of citizens to spend their cash on goods and services, which could cause a recession in 2023, which would send shockwaves across the planet.
IG Markets analyst Hebe Chen said in a statement she expected a “stormy week ahead” as “fear continues to erode the market” after the S&P 500 last night dive into a bear market, which is defined as more than 20 per cent below its last record closed.
“Australian shares are poised to drop sharply amid heightened concern to reprice the risk for a US recession and its catastrophic consequence to the global economy,” Ms Chen noted.
“(The) Asian market started the stormy trading week with a more than 2 per cent drop for both Hang Seng and Nikki index. European stocks also tumbled to three-month lows on Monday.”
It also comes just days after US billionaire Jamie Dimon – the CEO of JPMorgan Chase – similarly warned of a looming economic “hurricane”.
Mr Dimon – who has led the largest of the big four American banks since 2005 and who boasts a staggering net worth of $1.8 billion – said he was expecting “bad outcomes” on the horizon.
“They’re big storm clouds here. It’s a hurricane,” he said.
“That hurricane is right out there down the road coming our way. We just don’t know if it’s a minor one or Superstorm Sandy … And you better brace yourself.”
Mr Dimon also said the Fed’s decision to pursue “quantitative tightening” – a monetary policy tool designed to decrease the amount of money supply in the economy – as it simultaneously hiked interest rates could prove disastrous, claiming people will be “writing about [this] in history books for 50 years”.